Members are invited to approve supplementary provision of $129.5 million under Head 190 University Grants Committee Subhead 492 Grants to UGC-funded institutions to meet the institutions' shortfall in tuition fee income in the 1998/99 academic year.

PROBLEM

As a result of the Government's decision to maintain the 1998/99 tuition fees at the 1997/98 levels, the University Grants Committee (UGC)-funded institutions have received less tuition fee income in the 1998/99 academic year than budgeted. Without supplementary provision, they cannot deliver the services as planned.

PROPOSAL

2. We propose supplementary provision of $129.5 million in 1998-99 under Head 190 University Grants Committee Subhead 492 Grants to UGC-funded institutions to meet the UGC-funded institutions' shortfall in tuition fee income in the 1998/99 academic year.

JUSTIFICATION

3. We determine recurrent funding for the UGC-funded institutions on a deficiency grant basis after deducting from the estimated gross expenditure an assumed income from tuition fees and from other sources. The assumed tuition fee income is an estimate that has to be reconciled when the actual fee levels are known. This means that if the actual fee levels subsequently approved by the Administration for a certain academic year are lower than those assumed in determining the recurrent grant, Government will normally provide additional funds to meet the shortfall. On the contrary, if there is a surplus income as a result of the actual tuition fee level being higher than that assumed, the excess in recurrent grant will be clawed back by Government.

4. As a result of the Government's decision to maintain the 1998/99 tuition fees at the 1997/98 levels, the tuition fee income for UGC-funded institutions in the 1998/99 academic year is $149.5 million less than the amount assumed in determining the recurrent funding to the UGC in the current triennium.

5. Having regard to the current economic climate, the Administration has been in discussion with the UGC on the possibility of the UGC-funded institutions absorbing, in whole or in part, the funding shortfall. The UGC has pointed out that in the current triennium, institutions would already have to operate under considerable financial constraints. These include a 10% savings in terms of average student unit costs1 to be achieved by the end of the current triennium (1998/99 to 2000/01). Moreover, in support of Government's efforts to encourage further education, the UGC-funded institutions have, without detriment to quality, enrolled 265 additional students (in full-time-equivalent terms) above the target number at the taught postgraduate level, for which no additional recurrent or capital funding is available from Government. Nonetheless, the UGC has identified $20 million within the approved provision for 1998-99 to meet in part the shortfall in tuition fee income in 1998/99. Unless the remaining shortfall is met by Government, this would affect funding for new initiatives including the development of areas of excellence and undermine the institutions' ability to achieve and maintain recognition as world-class research centres in the international community and keep pace with rising international standards.

6. In the light of the above, we propose to provide to UGC through supplementary provision in 1998-99 additional funding of $129.5 million to meet the remaining shortfall in full. Subject to Members' approval, we will disburse the additional sum in 1998-99 to keep to the minimum any disruption to the granting of funds by UGC to institutions for the development of areas of excellence.

FINANCIAL IMPLICATIONS

7. If Members approve the proposal, we shall offset the supplementary provision of $129.5 million by deleting an equivalent amount under Head 106 Miscellaneous Services Subhead 251 Additional commitments.

8. As a result of the freeze in the tuition fee level, the estimated requirement for grants for students under the Local Student Finance Scheme will be reduced by $46 million for the 1998/99 academic year. In overall financial terms, the net additional expenditure for Government will therefore be $83.5 million.

BACKGROUND INFORMATION

9. Eight institutions currently come under the aegis of the UGC, namely City University of Hong Kong, Hong Kong Baptist University, Lingnan College, The Chinese University of Hong Kong, The Hong Kong Institute of Education, The Hong Kong Polytechnic University, The Hong Kong University of Science and Technology and The University of Hong Kong.

10. Recurrent funding to UGC-funded institutions for the 1998/99 to 2000/01 triennium was considered by the Finance Committee of the Provisional Legislative Council in March 1998. Members accepted the financial implications for recurrent grants totalling $35,399.4 million for the eight UGC-funded institutions. This amount, known as the Cash Limit for Government's recurrent funding to the UGC in the triennium, will not normally be exceeded except for adjustment to take into account the civil service salary adjustment and the difference between the estimated and actual tuition fee income.

11. In view of the current economic situation, the Chief Executive in Council decided that the tuition fees for the UGC-funded institutions in the 1998/99 academic year should be maintained at the 1997/98 level.

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Education and Manpower Bureau
January 1999

1.Having considered the stage of development of the Hong Kong Institute of Education (HKIEd), and the fact that the institute only came under the aegis of the UGC in the 1996/97 academic year, the HKIEd is not subject to the 10% student unit cost reduction.